Legitimacy in flux: A moderated mediation model of the liability of foreignness in global IPO markets

Abstract Research Summary Foreign initial public offerings (IPOs) play a significant role in global stock markets. This paper aims to elucidate why foreign IPOs suffer from the liability of foreignness in capital markets (CMLOF) and how they overcome this liability. Building on international business research and the legitimacy perspective, I develop a moderated mediation model demonstrating that (1) media sentiment variability mediates the effect of IPO firms' foreignness on the delisting hazard, and (2) the firm's geographic diversification moderates this mediated effect. This paper advances IPO research by addressing the crucial yet understudied area of foreign IPO firm survival and empirically examining the sources and remedies of the CMLOF in the context of foreign IPOs. Managerial Summary Foreign IPOs often face significant challenges in gaining legitimacy and stability in new markets, leading to higher risks and potential failure. This study highlights the role of media coverage as a mediator in this process, where higher uncertainty increases the likelihood of delisting. However, geographic diversification can mitigate these risks by enhancing legitimacy and reducing volatility. Managers can improve the success rates of foreign IPOs by adopting strategies that reduce media sentiment variability, such as diversifying operations across multiple regions to spread risk and demonstrate resilience. These international strategies are helpful in stabilizing stock prices, maintaining investor confidence, and ultimately improving the survival chances of foreign IPOs.